In re Viropharma Inc. Secs. Litig.

• Decision Date: 15 May 2014
• Docket Number: Civil Action No. 12–2714.
• Parties: In re VIROPHARMA INCORPORATED SECURITIES LITIGATION.
• Court: U.S. District Court — Eastern District of Pennsylvania

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In re VIROPHARMA INCORPORATED SECURITIES LITIGATION.

Civil Action No. 12–2714.

United States District Court, E.D. Pennsylvania.

Signed May 15, 2014.

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J. Gordon Cooney, Jr., Marc J. Sonnenfeld, Steven A. Reed, Morgan, Lewis & Bockius LLP, Philadelphia, PA, for Viropharma Incorporated Securities Litigation.

MEMORANDUM

JONES, II, District Judge.

I. Introduction

The instant motion relates to the consolidated class action in which lead Plaintiff Carpenters' Local 27 Defined Benefit Fund asserts that Defendants ViroPharma Incorporated (“ViroPharma”), Vincent J. Milano, Charles A. Rowland, Thomas F. Doyle, and John P. Wolf violated Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b) ( “Section 10(b)”); Rule 10b–5 promulgated thereunder, 17 C.F.R. § 240.10b–5 (“Rule 10b–5”); and Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) ( “Section 20(a)”). Plaintiff filed this litigation on behalf of all persons who purchased ViroPharma securities between December 14, 2011 and April 9, 2012 (the “Class Period”).

Having considered the motion, the pleadings, and the oral arguments made in open court on June 10, 2013, for the reasons set forth below, Defendant's Motion is denied.

II. Factual Background

ViroPharma Incorporated (“ViroPharma”) is a publicly traded biotechnology company that maintains a principal place of business in Exton, Pennsylvania. ViroPharma markets and sells a number of products, one of which is the antibiotic Vancocin, which treats the gastrointestinal infection, Clostridium dificile associated diarrhea (“CDAD”). Vancocin was a lucrative property for ViroPharma, and comprised a substantial portion of ViroPharma's revenues from 2005–2011.

The Complaint alleges that the patent for Vancocin expired in 1996. The FDA's requirement that a generic version of Vancocin be tested on humans, however, created a barrier for generics to enter the market. In 2006 the FDA changed its position regarding the proof necessary to establish bioequivalence, allowing for laboratory testing instead of testing on human subjects. The Complaint alleges that this change substantially lowered any barriers to entry and threatened ViroPharma's hold on the Vancocin Market. As a challenge to the FDA's decision, ViroPharma filed a Citizen's Petition¹ with the FDA, which

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was amended twenty times between 2006 and 2011. A generic drug could not be introduced while the Citizen's Petition was pending.

In 2008, Congress passed the QI Program Supplemental Funding Act of 2008 (the “QI Act”), which permits the FDA to grant an additional three years of marketing exclusivity for “Old Antibiotics”—such as Vancocin—under the Hatch–Waxman Act² if a company can demonstrate that the “Old Antibiotic” can be administered for a new “condition of use.”³

In an effort to stave off the arrival of generics from other companies and to gain three years of statutory exclusivity under the QI Act,⁴ and to market Vancocin for a new “condition of use,” ViroPharma licensed a study conducted by Genzyme Corporation (“Genzyme Study”), to support a supplemental New Drug Application (“sNDA”) that ViroPharma would file with the FDA.

The Genzyme Study compared tolamer—a Genzyme experimental drug used to treat CDAD—with Vancocin. Though the Genzyme study was ultimately a failure, in that Genzyme could not gain approval for tolamer, ViroPharma sought to use this data. Based on analysis of the licensed data in the Genzyme study, ViroPharma submitted an sNDA to the FDA on April 23, 2010, even though ViroPharma “knew, based on FDA policy statements, that the FDA would not accept such an analysis as evidence of effectiveness for any use.” In February 2011, the FDA rejected the sNDA, which ViroPharma then amended and resubmitted in June 2011.⁵

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On December 14, 2011, the FDA approved the sNDA for Vancocin's new label.⁶ Plaintiff alleges that despite approving the label change, “the FDA was clearly stating that ViroPharma's new label did not support a new active ingredient, a new indication, a new dosing regime, or a new route of administration.” Plaintiff alleges that the FDA was warning ViroPharma that the labelling change would not be sufficient for a grant of the additional three year exclusivity. Nevertheless, on that same day, ViroPharma issued a press release announcing the approved label change and also that “[a]s a result of today's sNDA approval, ViroPharma believes Vancocin meets the requirements for, and thus has, three years of [marketing] exclusivity, and that generic vancomycin capsules will not be approved during this period.” Plaintiff alleges that “market accepted Defendants' statements [regarding the prospect of exclusivity] and believed that the additional three years of marketing exclusivity for Vancocin was a fait accompli. ” In turn, ViroPharma stock jumped 17.85% on the day of the announcement. Notwithstanding warning signs from prior communications with the FDA, on December 22, 2011 ViroPharma nevertheless supplemented their Citizen's Petition to the FDA and asserted that the new label provided several new “conditions of use” and this qualified for the additional three years of marketing exclusivity.

During the Class Period, and before the FDA ultimately made a decision on ViroPharma's Citizen's Petition, Plaintiff alleges that ViroPharma continued to make materially false and misleading statements to the public, and omit crucial information from public statements and documents regarding the FDA's indication that Vancocin would not be approved for a “new condition of use.”⁷

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On April 9, 2012, the FDA formally denied ViroPharma's Citizen's Petition, stating that:

Notably, ViroPharma's position that [the Genzyme] studies were essential to the approval of a new indication and new dosing regimen are inconsistent with the contents of the sNDA that contained those studies, and the letter detailing the approval of the sNDA. As indicated in the approval letter, the Agency determined that the supplement supported “updates to the prescribing information” and “conversion of the current label into the [PLR] format.” In addition, had you intended to seek approval for a new indication or a new dosing regimen (or a new active ingredient, new dosage form, or new route of administration), you would have been required by statute to have conducted an assessment of the safety and effectiveness of the product for the claimed indication in the pediatric patients under the Pediatric Research Equity Act (PREA). You did not submit any such assessments in your sNDA or otherwise reference PREA's requirements by seeking a deferral or waiver of this requirement. Moreover, your approval letter to which you did not object, confirmed that PREA was not triggered by your sNDA. This confirms that you, like the Agency, did not believe your labeling changes constituted a new indication, new dosing regimen, or other PREA-triggered change.

Upon the news of the formal denial of exclusivity, and the FDA's simultaneous approval of three generic versions of Vancocin produced by competitors, ViroPharma shares declined 21%.

III. Legal Standard

a. Motion to Dismiss under 12b(6)

In deciding a motion to dismiss pursuant to Rule 12(b)(6), courts must “accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief.” Phillips v. Cnty. of Allegheny, 515 F.3d 224, 233 (3d Cir.2008) (internal quotation marks omitted). After the Supreme Court's decision in Bell Atlantic

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Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678, 129 S.Ct. 1937 (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955 ). This standard, which applies to all civil cases, “asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. at 678, 129 S.Ct. 1937 ; accord Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009) (“[A]ll civil complaints must contain more than an unadorned, the-defendant-unlawfully-harmed-me accusation.”) (internal quotation marks omitted). “In analyzing a motion to dismiss under the PSLRA, this Court must examine the complaint in its entirety, as well as documents incorporated into the complaint by reference or matters of which a court may take judicial notice.” In re NutriSystem, Inc. Sec. Litig., 653 F.Supp.2d...